ITEM 2. DESCRIPTION OF PROPERTIES
TRUE NORTH PROJECT
True North is an advanced exploration and development project, located in
the center of the Fairbanks Mining District, Alaska. The project was acquired
by La Teko in 1993 and is now under joint venture with Newmont, subject to its
right to terminate the venture and reconvey its 65% interest to the Company.
Newmont, as operator of the project, is in the midst of a multi-million dollar
development program which includes metallurgical testing and engineering work
focused on the area of known gold mineralization plus exploration for new gold
Location and Access
The True North project is located on the west flank of Pedro Dome,
approximately 17 miles northeast of Fairbanks, Alaska. The property is accessed
by a five-mile dirt and gravel road from the paved Steese Highway, which passes
along the south and eastern borders of the property.
The True North project, consisting of 86 leased Alaska state mining claims,
aggregating 2,284 acres, was acquired by the Company's wholly-owned subsidiary,
La Teko Resources, Inc., from AMAX Gold Exploration, Inc. ("AMAX") in 1994 in
consideration of the Company's completion of $250,000 in exploration in each of
1994 and 1995. The Company was also required to pay to AMAX $500,000 in 1994
and $250,000 yearly thereafter to a cumulative total payment of $1,500,000 and
to pay a 1% net smelter return ("NSR") royalty. All required payments to date
have been paid.
On June 9, 1994, La Teko Resources, Inc., entered into a joint venture
agreement (the "JV Agreement") with Newmont, whereby Newmont acquired a 65%
interest in True North. In order to earn that interest, Newmont paid La Teko $6
million and must complete $21 million in exploration and development work on
True North (approximately $10.5 million spent as of December 31, 1997) and
complete a feasibility study. The Company will receive no further cash payments
from Newmont under the JV Agreement. The feasibility study was to have been
completed by December 31, 1996. However, Newmont has elected to extend the date
for completion. The JV Agreement allows this extension for up to six months
beyond the time when Newmont ceases an active exploration program. During such
extension, certain of Newmont's exploration costs are not credited against its
$21 million funding commitment. After Newmont has earned its 65% interest in
True North, La Teko and Newmont will each fund project development costs on a
pro rata basis, with Newmont as operator. If either partner fails to contribute
its share, its interest in the property will suffer corresponding dilution.
Newmont can terminate the JV Agreement by reconveying its 65% interest in the
property to the Company, which would then be under no obligation to reimburse
Newmont for any payments or expenditures to date. Newmont and La Teko may each
choose to sell their interest in the JV Agreement, and the other participant has
a preemptive right for 60 days from the date of receiving a notice stating the
price and terms to elect to acquire the offered interest. If the preemptive
right is not exercised the offering participant has 120 days to consummate the
transfer to a third party at a price and terms no less favorable than in the
notice. Although Newmont has advised the Company that Newmont proposes further
exploration of the True North property during 1998, Newmont's further actions
respecting the True North project are beyond the ability of the Company to
either control or predict. There can be no assurance that the results of
further exploration, development or feasibility analysis will warrant placing
the True North property into production by either the Company or Newmont. The
terms and conditions of the joint venture with Newmont are more fully discussed
in the Company's annual report on Form 10-K for the year ended December 31,
Since acquiring the project, Newmont has added further claims by staking,
purchase and options from third parties, bringing the total project acreage in
early 1998 to 14,300 acres. The Company has paid its 35% share of acquisition
costs so that these mineral properties have become part of the joint venture as
per the terms of the JV Agreement.
Placer gold was first discovered in a creek draining the south side of
Pedro Dome in 1902 by Felix Pedro. Placer mining on Dome and Eldorado Creeks,
immediately adjacent to the True North property, began about eight years later.
During the period 1912 to 1914, the Soo Mine reportedly produced between 4,000
and 5,000 ounces of lode gold from a quartz vein in the southern portion of the
True North property. Several other small lode occurrences were prospected in
In 1916, 200 tons of stibnite ore (antimony) was reportedly produced from
the Hindenburg Mine, within the area of the presently defined Hindenburg gold
deposit. A further shipment of 16 tons grading 38% antimony was reportedly made
in 1942. Another prospect, the Mother Lode, adjacent to the presently defined
Shepard deposit, had exploration shafts to 147 and 215 feet.
AMAX first acquired an interest in the property covering the Hindenburg
Mine in 1990. The property position was expanded as AMAX completed the first
drill program on the property, 4,000 feet, in 1991. The table below outlines
subsequent exploration on the property, including that conducted since the
Company acquired it in 1993.
1992 1993 1994 1995 1996 1997 Total
------ ----- ------ ------ ------ ------ -------
RVC Drilling 5,332 3,450 51,810 14,885 40,428 57,753 173,658
Drilling -- -- 2,042 13,049 24,798 2,491 42,380
Geology and Mineralization
The True North property lies within a broad belt of metamorphic rocks
trending through central Alaska and Yukon known as the Yukon Tanana Terrane.
Numerous gold occurrences are found within these rocks, including the famous
Klondike gold camp in the Yukon and the Fairbanks Mining District of Alaska.
Lode gold occurrences typically occur where the older metamorphic rocks have
been intruded by granitic igneous rocks which were emplaced approximately 90
million years ago.
Several types of gold mineralization have been exploited. The early miners
sought the placer gold in streams and rivers draining the bedrock gold source
areas and this mining activity continues today. Initial lode mining
concentrated on quartz veins containing high grade gold values. More recently,
however, large, low-grade gold deposits have been sought. The best example of
this is the Fort Knox deposit, seven miles east of True North, which was placed
into production by Cyprus-AMAX in December, 1996, at a mining rate of
approximately 350,000 ounces gold per year.
Gold mineralization on the True North property is hosted by metamorphic
rock of the Chatanika Terrane, including quartz-mica schist, quartzite,
eclogite, amphibolite, marble, and argillite. Some units are graphitic. Gold
occurs in nearly flat-lying shear zones and along faulted contacts. These zones
are typically 30 to 50 feet thick, are stacked one on top of the other, and can
be correlated across the property. The three originally defined zones,
Hindenburg, Central, and Shepard, now all appear to be part of a single zone
with a continuous strike length of roughly 5,000 feet. Average grades are 0.07
to 0.09 ounces gold per ton (2.4 to 3.1 grams gold per tonne), although higher
grades in excess of 1 ounces gold per ton occur locally.
A more recently defined zone, the Zeppelin, occurs just north of the
Central zone, and is higher grade, averaging approximately 0.12 ounces gold per
ton (4.1 grams gold per tonne).
Three other zones of significance have been discovered, the Murray Zone
discovered in 1996, and the Merlyn Zone and Dome Creek Zones, discovered in
1997. Each of these zones require additional drilling to be fully evaluated.
Within the first 150 to 200 feet of surface, the gold mineralization is
predominantly oxidized. Below this depth there is a gradual transition to
sulfide mineralization. The depth of oxidation is typically greater at higher
elevations and less in the valleys, and generally reflects depth to the top of
the water table. As the Murray, Merlyn and Dome Creek zones are in valleys, the
depth of oxidation is less than for the zones where the resources described
On June 5th, 1997 the Company announced a mineral inventory calculation
done by Newmont utilizing all drill data to the end of 1996 of 18,208,000 tons
at an average grade of 0.072 ounces gold per ton (2.5 grams per tonne), for a
total contained 1,313,899 ounces of gold. Of this total 1,011,819 ounces have
been classified as oxide. Oxide is defined by Newmont as mineralization with a
ratio of cyanide extractable gold to fire assay gold of 0.6 or greater. This
calculation was done using a $400 per ounce of gold cone in the calculations.
The Company engaged an independent consultant who confirmed the Newmont
calculation through an independent review of all drill data.
Subsequent to year end 1997 Newmont completed a calculation utilizing a
$350 per ounce of gold cone and included further data to upgrade a portion of
the resource to "Mineralized Material Not in Reserve", which Newmont included in
its announced mineralized resources. The updated calculation is 10,215,000
million tons grading 0.078 ounces gold per ton (2.7 grams per tonne), a total of
796,770 ounces of gold, all of which is classified as oxide.
Preliminary metallurgical bottle roll testing has demonstrated gold
recoveries from in the order of 90% for oxidized mineralization. As the degree
of oxidation decreases, gold recoveries by leaching also decrease. Bench scale
flotation tests of sulfide mineralization indicate gold recoveries of 82 to 96%
in the sulfide concentrate.
Large diameter core samples and surface bulk samples were collected in the
fall of 1997 for detailed metallurgical work. The core will be examined
mineralogically followed by smaller diameter (eight inch) column leach testing
while the two 25 ton bulk samples will also undergo large diameter (two foot)
column leach tests. This work is currently in progress.
The Company has been advised by Newmont that it has budgeted a total of
$3.6 million for 1998 including $1.5 million for the property payments due
during the year, further land acquisitions and a continued exploration program
directed towards power auger sampling on areas outside the current resources
area for January through June 1998. A further $2.1 million is budgeted for
prefeasibility metallurgical studies described above. Subject to satisfactory
test results and favorable market conditions, the metallurgical testing will lay
the foundation for scoping and engineering studies scheduled for the second half
of 1998. This work will encompass siting studies, geotechnical work,
engineering design and detailed cost estimates. There will also be in-fill
drilling for reserve definition purposes.
RYAN LODE PROJECT
The Ryan Lode property has a long history of gold exploration and mining,
dating back to the turn of the century. During the period from 1987 to 1989, La
Teko successfully produced 19,220 ounces of gold from 329,000 tons of ore mined
by open pit and extracted by heap leach methods. The Company has subsequently
made a substantial investment in the property, both in the reclamation of the
previous mining activity and in exploration for more minable reserves.
The Ryan Lode property is located on the southeast flank of Ester Dome,
approximately eight miles west of Fairbanks, Alaska. The Parks Highway,
connecting Fairbanks to Anchorage, traverses the southern boundary of the
property. The property can be accessed by Gold Hill Road and then Henderson
Road, for a total distance of 2.4 miles north from the highway. Power supply
also runs very close to the property.
The core Ryan Lode claims, consisting of 10 claims, 14 unpatented claims,
and one unpatented placer claim totaling 700 acres, are subject to a lease
agreement which calls for a 5% net smelter royalty on production from these
claims. Annual advance royalty payments are being made, currently amounting to
$150,000 per year, escalating to $200,000 per year in 2013, to $250,000 per year
in 2018, to $300,000 per year in 2023, and $300,000 per year from 2028 to 2032.
The lease agreement may be extended annually thereafter. A 3% net smelter
return royalty is payable on the surrounding Bar and St. Patrick claims
comprising a total of 289 acres.
A prior lease agreement with LAC Minerals, U.S.A., requires payment of $5
million on the basis of 5% of net profits after recovery of pre-production
costs, 10% of net profits after recovery of two times pre-production costs, and
20% of net profits after recovery of three times pre-production costs until the
$5 million is paid. Pre-production costs are restricted to a maximum of $1
The Company has expanded its Ryan Lode properties so that it now holds 234
additional acres adjacent to the Ryan Lode claim group. These claims are
generally subject to 3% to 4% net smelter return royalties based on mineral
product mined and removed from the properties.
Exploration and Development History
Extensive placer mining has taken place in the vicinity of Ester Dome since
the turn of the century. The first lode gold interest was during the period
1912 to 1916, when several prospect pits and two shafts were sunk. In 1916,
Kennecott Copper Corporation acquired the property, sank a 500-foot shaft and
carried out significant development activity. Others continued with sporadic
activity and, by 1930, reserves were estimated at 1.3 million tons grading 0.158
ounces gold per ton.
In 1938, the property was acquired by Bartholomae Oil Corporation which
continued with more exploration and development, culminating in the production
of 620 ounces gold from 1,430 tons of ore. All operations ceased during World
War II. Minor exploration was carried out from 1954 to 1958 and again from 1969
During the period 1974 to 1978, Fourbear Enterprises, Inc., constructed a
400 tpd flotation mill, which encountered gold recovery problems, and operations
ceased. St. Joe American Corporation then acquired the lease and carried out
further surface and underground exploration. In 1985, the property was acquired
by Citigold Mining Company, Ltd., which carried out a 10,000 ton test heap leach
before 1986, when it was acquired by La Teko. In the following three years, La
Teko mined and leached 329,000 tons of ore at an estimated grade of 0.09 ounces
gold per ton, to recover 19,220 ounces of gold. Production ceased in 1990.
From 1990 to the present, La Teko has carried out substantial exploration
on the property, including 220,236 feet of drilling in 752 drill holes. The
Company has also continued a program of baseline environmental monitoring and
reclamation of previous mining activity.
In 1997, La Teko continued the reclamation work on the A-B-C-D heap leach
pads, where gold production occurred in the late 1980's, as well as the
exploration trenches. Ryan Lode Mines, Inc., a wholly owned subsidiary of the
Company and operator of the Ryan Lode project, was awarded the 1997 Reclamation
Award from the Alaska Department of Natural Resources for this reclamation work.
Also in 1997 Silverado completed 8,855 feet of drilling in 38 drill holes
prior to signing the agreement described below.
Geology and Mineralization
The principal rock unit in the Ryan Lode area is the Cleary Sequence member
of the Fairbanks Schist, consisting of varied rock types, including
metamorphosed volcanic rocks, along with marble, calcareous quartz-mica schist
and carbonaceous units. Granite intrusions in the area are principally
concentrated near and within the Curlew deposit, south of the main Ryan Shear.
The gold in both the Ryan and Curlew ore bodies occurs in mineralized
quartz veins, breccias, and gouge zones within broad shear zones. The gold
occurs with sulfide minerals pyrite, arsenopyrite, and locally stibnite. Higher
grade gold mineralization typically occurs next to the hanging wall of the
shear, with lower grade mineralization below this.
The main shear zone, which reaches 150 feet in thickness in places, has
been traced by drilling for over a mile and is contained in metasedimentary and
metavolcanic rocks of the Cleary Sequence. The Curlew Shear, which may be an
offset, southern continuation of the Ryan Shear, ranges up to 180 feet in
thickness. Other subparallel shears also occur on the property, and although
these are currently poorly defined, they could add to the future gold resource
Mineralization is typically oxidized to depths of 200 to 300 feet, with an
enriched or supergene zone for 50 to 100 feet below this. The oxidized and
supergene zones demonstrate good gold recoveries by leaching, while rates of
gold recovery by leaching decreases at increasing depths below the enriched
In 1994, an independent professional engineering firm engaged by the
Company calculated proven and probable reserves for Ryan and the adjacent Curlew
Shear to be 14.5 million tons grading 0.056 ounces gold per ton (1.9 grams gold
per tonne), with a 0.015 ounces gold per ton (0.5 grams gold per tonne) cut-off
and a stripping ratio of 3.8:1. This is a reserve of 822,200 contained ounces
gold within a geological resource of 2.4 million ounces gold. A subsequent
"high grade" pit calculation showed a reserve of 4.6 million tons grading 0.09
ounces gold per ton (3.1 grams gold per tonne) with a strip ratio of 7.5:1 and
an underground reserve of 1.46 million tons grading 0.215 ounces gold per ton
(7.4 grams gold per tonne) . The "high grade" pit includes only oxide and
supergene mineralization, and is thus totally amenable to heap leach gold
The ore at Ryan Lode requires crushing and agglomeration prior to leaching.
Column leach tests show that gold recoveries in the range of 70% to 80% can be
expected. A gravity circuit has been shown to recover 45% to 50% of the gold.
Gravity separation of gold in combination with leaching would be expected to
provide faster and superior gold recovery to leaching alone.
Sale to Silverado Gold Mines Ltd.
The Company agreed in 1997 to sell its 100% interest of the Ryan Lode
property to Silverado. Subsequent to year end on March 26, 1998 the Company was
given notice by Silverado that it elected to terminate the sale agreement.
The Company will evaluate the ongoing development of the Ryan Lode property
independently. It will also contact other potential parties which may be
interested in purchasing or joint venturing the Ryan Lode. The Company will
continue the reclamation requirements while the development and sale options are
TWIN BUTTES AND JUNIPER PROPERTIES
In February 1995, the Company located 104 state of Alaska prospecting
sites called the Juniper property on approximately 16,131 acres located 30 miles
northeast of Fairbanks, Alaska. This property covers rocks of the Chatanika
Terrane, the same as those hosting the True North deposit 15 miles to the
southwest. In addition, the property lies along the same, northeast-trending
structural linear which intersects both the True North and Ryan Lode gold
deposits. There is little evidence of historical prospecting in the area,
largely because of the thick cover of wind-blown silt and clay which masks the
underlying geology and would effectively hide any bedrock mineralization.
However, minor placer gold mining activity is evident in a number of streams
which drain the area.
In April 1996, the Company executed a five-year agreement with the
University of Alaska to explore its 12,640-acre Twin Buttes property.
Subsequently, the Company paid $30,000 for an exclusive development and mining
lease. During 1997 the Company made its first annual option payment of $45,000.
The property is located 28 miles northeast of Fairbanks, Alaska, adjoining the
south side of the Company's Juniper property. The property is underlain by the
same rocks as the Juniper property and has similar potential to host gold
During 1995, the Company carried out initial exploration efforts on the
Juniper property, including geochemical sampling, the results of which suggested
that further exploration is warranted. In 1996 the Company expanded its effort
to include the Twin Buttes property and did additional geologic mapping and soil
sampling. The Juniper prospecting sites were converted into 405 state claims.
The gold anomalies detected were weak, possibly because of the extensive
overburden cover which could mask the expression of buried mineralization.
In 1997, a further program of prospecting, geological mapping and
geochemical sampling was conducted over both properties and a part of the claims
were flown with a low level, helicopter-borne magnetic and electromagnetic
survey. The magnetic survey highlighted patterns of structural deformation and
zones of low magnetic intensity on the Twin Buttes lease that are similar to
those observed over the True North and Fort Knox gold deposits. The Company
acquired an additional 22 prospecting sites totaling 3,360 acres to cover
extensions of the identified anomalies beyond the Twin Buttes lease.
The Company's plans for the 1998 summer exploration season are not yet
DISCOVERY GULCH PROPERTY
On May 24, 1996, the Company, through its wholly-owned subsidiary, Ryan
Lode Mines, Inc., entered into a letter agreement with Mrs. Helen Warner for an
option on approximately 5,000 acres known as Discovery Gulch (the Discovery,
Deadwood and Tom group of claims) in the Circle Mining District near the small
town of Central, Alaska. The property is on Deadwood Creek, approximately 125
miles northeast of Fairbanks.
The Company paid $15,000 for an exploration lease. La Teko made the annual
payment of $10,000 in 1997 and a further $10,000 is required upon the 1998
anniversary date. Subsequent annual payments, beginning with the third
anniversary date, will be $35,000. The property is subject to a 2% net smelter
return royalty payment. The Company will have a vested interest in the property
upon a $300,000 cash payment to be made to Warner at the Company's option within
one year after completion of a positive feasibility study. The minimum
exploration requirement for 1997 of $30,000 was completed; the 1998 requirement
is $35,000. During the fourth exploration season, the minimum exploration
requirement increases to $100,000 with an additional $50,000 increase annually
The Company completed a $25,000 exploration program during 1996. This
effort included geological mapping, soil sampling, and trenching. A number of
samples returned anomalous gold values that confirm results of previous
exploration by others. The anomalies appear to be associated with a granitic
intrusion that occurs on the property. Placer gold production from the
surrounding creeks is further indication that this is an area with lode gold
In 1997, a reconnaissance ridge top soil sampling program was conducted
throughout the Discovery Gulch claim blocks to detect anomalous gold areas.
Five consecutive samples, spaced 200 feet apart, returned anomalous gold and
arsenic values. Subsequently, a 100 foot spaced grid oriented along the north-
northwest ridge top was sampled to better define the anomaly. The grid is
approximately 1000 feet long by 500 feet wide. The results continue to be
encouraging, with 44 of the 78 samples returning better than 100 parts per
billion (ppb) gold and elevated arsenic values. Only nine samples had gold
values below the detection limit. The anomaly remains open, particularly west
and east at lower elevations where the original reconnaissance soil program did
not extend. Three small granodiorite outcrops were mapped within the area of
the soil grid. The balance of the area is covered by overburden.
In addition to the above target, the reconnaissance program returned
several other high, but isolated, gold values. For example one soil sample on
the Discovery claim block contained 2620 ppb Au, supported by a re-analysis of
3000 ppb Au.
In 1998 La Teko expects to do additional soil sampling to further delineate
the extent of the gold-in-soil anomaly followed by trenching to test for the
source of the gold anomaly.
ISSUES AFFECTING MINING OPERATIONS IN ALASKA
The climate in the Fairbanks area is variable. The record temperatures are
a low of -54 degrees Celsius (-66F) and a high of 37 degrees Celsius (99F). The
mean annual temperature is -3 degrees Celsius (26.5F). The average temperature
for the months of April through September is 10 degrees Celsius (50.1F), the
average temperature for the months of October through March is -16 degrees
Celsius (2.75F). The temperature rises above 22 degrees Celsius (70F)
approximately 51 days per year and drops below freezing 225 days per year. The
rivers in the region begin to freeze in October and thaw in May. Average annual
precipitation in Fairbanks is approximately 12 inches, which includes an average
snowfall of 69.3 inches. Mining operations can be conducted in the region
throughout most of the year, although exploration is restricted during the
GOVERNMENT REGULATIONS AND ENVIRONMENTAL CONSIDERATIONS
There are extensive federal and state laws designed to conserve and prevent
the degradation of the environment. These laws and regulations require
obtaining various permits before undertaking certain exploration and development
activities and may result in significant delays, substantial costs, and the
alteration of proposed operating plans. These requirements also necessitate
significant capital outlays and may result in liability to the owner of the
property for damages that may result from specific operations, all of which may
materially and adversely affect the business of the Company and the financial
results of its operations.
The Company believes that it is in material compliance with applicable
The Ryan Lode property is located eight miles west of Fairbanks, Alaska,
and 0.5 miles from rural homes. The Company initiated baseline environmental
monitoring for the project in 1993, including air quality, surface water
quality, ground water quality, geohydrology, biological inventory, and acid base
accounting. These activities will support environmental permitting activities
which will commence with the development of an operating plan.
The Company expects that obtaining required permits for proposed activities
on the Ryan Lode property may be adversely affected because of its location
eight miles from the city of Fairbanks and approximately one-half mile from
rural homes, which exposes the Company's proposed activities to greater public
interest and scrutiny and increases the potential adverse impacts on humans
resulting from the use, storage, or discharge of hazardous materials. If
production is to occur directly on the property the Company expects that it may
be required to complete an environmental impact statement and be involved in a
protracted process with applicable permitting agencies and the public in
obtaining required permits. There can be no assurances respecting the time
involved to obtain required permits, restrictions on operations that may be
imposed as a condition to obtaining such permits, or when production could
commence. Further, there can be no assurance that the Company will not have to
alter its plans in response to government review or public comment, which could
adversely affect the financial return to the Company from its proposed
activities. La Teko will be required to demonstrate substantial financial
responsibility through bonding, deposits, or other means acceptable to governing
agencies before resuming operations at Ryan Lode.
The True North property is located in a relatively uninhabited area and
therefore presents lesser concerns about factors such as light, noise, dust, and
visibility considerations in receiving permits. The Cyprus/Amax Gold, Inc.,
Fort Knox property, located in close proximity to True North has been issued
permits to commence production without the necessity of providing a full
environmental impact statement. Production facilities have been completed and
the project poured its first gold in December 1996. Newmont, as the operator of
the True North project, will have the responsibility of permitting the True
North project. There can be no assurance that Newmont will continue with
development of the True North project or that it will be able to obtain permits
without substantial delays and/or extensive expense.
The mining and exploration operations of La Teko are also subject to both
federal and state laws and regulations pertaining to employee health and safety.
STATE OF ALASKA MINING LICENSE TAX, PRODUCTION ROYALTY, AND CLAIM RENTAL
The State of Alaska levies a mining license tax based on net income
reported to the federal government and royalties from Alaska mining property at
the following rates: there is no tax on taxable income under $40,000; however,
if taxable income exceeds $40,000 and is less than $50,000, the tax is 3% of the
total taxable income; $50,001 to $100,000 - $1,500 plus 5% of excess over
$50,000; $100,001 or over - $4,000 plus 7% of excess over $100,000. The State
of Alaska also charges a production royalty of 3% of net income on state mining
claims. An annual rental fee must be paid to the State of Alaska for each state
claim or fraction thereof. The rent is $20 per claim for the first five years
held; $40 per claim for the second five year held; and $100 per year per claim
thereafter. Claims staked before 1989 are considered to be staked in 1989 for
the purpose of this law.
SCHEELITE DOME PROPERTY
The Company has entered into an agreement dated 24 November, 1997 and
amended 2 February, 1998 with Kennecott Canada Exploration Inc.(" Kennecott") to
acquire 100% of the Scheelite Dome gold property in the Mayo mining district,
Yukon Territory, Canada.
The Company must make Canadian $135,000 ("C") in payments to the underlying
property owner and carry out C$800,000 worth of exploration expenditures as
a) Pay C$70,000 and conduct C$150,000 of exploration in 1998;
b) Pay C$65,000 and conduct C$200,000 of exploration in 1999;
c) Conduct C$200,000 of exploration in 2000; and
d) Conduct C$250,000 of exploration in 2001.
Should the Company exercise its option and deliver a feasibility study to
Kennecott, Kennecott shall have 60 days in which to elect to reacquire a 49%
interest in the project by paying 150% of 49% of the expenditures incurred by
the Company, or receive a 2% net smelter return royalty on production from the
The project consists of 587 contiguous claims, totalling 28,700 acres. It
is road accessible and located 16 miles northwest of Mayo, Yukon Territory.
Precious metals were first discovered on the property in 1916 and
exploration for both gold and tungsten continued intermittently through to 1990.
In 1991, H6000 Holdings Ltd. acquired the property and explored the property for
Fort Knox (Alaska) type deposits with disappointing results. Kennecott acquired
the ground in 1994 as part of a regional exploration program and carried out
geological mapping, geochemistry surveys, excavator trenching and, in 1995,
drilled eight diamond drill holes. Results of the work identified numerous
structurally controlled mineralized zones adjacent to the area explored by H6000
within an east-west oriented 0.9 miles by 2.2 miles (1.4 kilometers by 3.5
kilometers) area defined by >40 parts per billion (ppb) gold-in-soil anomaly.
Work by Kennecott in 1997 included the construction of 5.6 miles (9
kilometers) of drill access road, 8 excavator trenches totaling 1.0 linear
miles (1.6 kilometers) and the drilling of 13 reverse circulation drill holes
totaling 3,451 feet (1,052 meters) within the 40 ppb gold-in-soil anomaly
contour. Results returned significant gold values. Continuous chip samples
from one trench returned and uncut average grade of 330 ppb gold over 0.5 miles
(0.33 grams gold per tonne over 0.74 kilometer). A second trench returned an
uncut average grade of 290 ppb gold over 0.2 miles (0.29 grams gold per tonne
over 0.376 kilometers). The highest individual trench assay was 0.60 ounces
gold per ton over 14.8 feet (20.60 grams gold per tonne over 4.5 meters). All
the drill holes were mineralized, and individual holes ranged from 20 ppb gold
over 82 feet ( 0.02 grams gold per tonne over 25 meters) to 480 ppb gold over
95 feet (0.48 grams gold per tonne over 29 meters) and 240 ppb gold over 353
feet (0.24 grams gold per tonne over 107 meters). The highest value encountered
was 4,880 ppb gold over 5 feet (4.88 grams gold per tonne over 1.5 meters).
Work to date has located a number of structurally controlled targets within
the gold-in-soil geochemistry anomalies on the property that require trenching
and drilling to determine if economic concentrations of gold exist. In 1998 the
Company plans to carry out structural mapping and geophysical surveys to
further define structural controls of the gold mineralization where the gold may
have been localized into higher grade areas in the mineralizing system. Subject
to the program results and the Company's resources, a drill program will be
focused on testing various targets within the mineralized system.
The Margarita property consists of 36 unpatented federal lode mining claims
totaling approximately 700 acres. The property is located approximately 75
miles south of Tucson, Arizona, in the Oro Blanco Mining District, approximately
three miles from the Mexican border. The property can be reached by traveling
20 miles east from Arivaca on a graded county road The Company's purchase
agreement calls for a 3% net smelter return royalty. In addition, prior lessees
will receive a 10% net profit interest on the first 20,000 ounces of Gold
production and 15% thereafter.
During January 1997, the Company executed a letter agreement with Oro
Blanco Resources Corp. ("Oro Blanco") whereby Oro Blanco has an exclusive,
three-year option to explore the Margarita property. During this period, Oro
Blanco must complete $500,000 in exploration and issue 125,000 shares of common
stock to La Teko, according to the following schedule.
Common Stock to Exploration
La Teko Expenditures
Year 1 25,000 shares $100,000
Year 2 50,000 shares
Year 3 50,000 shares
At the end of the option period, Oro Blanco can acquire a 100% interest in
the Margarita property by paying the Company $100,000 in cash. The Company
retains a 1% net smelter return production royalty. Minimum annual royalties are
payable $50,000 on the fourth anniversary date, $75,000 on the fifth anniversary
date, and $100,000 on the sixth and subsequent anniversaries. Advance minimum
royalties will be applied against net smelter royalties during the life of the
mine. The final agreement has not been concluded and there are no assurances
that Oro Blanco will complete the agreement nor complete the terms of the
INTERNATIONAL FREEGOLD MINERAL DEVELOPMENT, INC. AND SILVERADO GOLD MINES LTD.
On July 19, 1994, La Teko entered into an agreement with International
Freegold Mineral Development, Inc. ("Freegold"), respecting the acquisition of
its stock. Pursuant to the agreement, La Teko acquired 750,000 shares of
Freegold common stock for $231,069 in July 1994 and a further 750,000 shares for
$269,844 in July 1996, for a total of 1.5 million shares for $500,913.
La Teko continues to own 1.5 million shares of Freegold constituting
approximately 8% of the issued and outstanding stock of Freegold, which had a
current market value as of December 31,1997, of $325,000, based on the closing
sales price for such stock as of such date on the Vancouver Stock Exchange,
converted to U.S. dollars. Because of the nature of the limited trading market
for Freegold stock, there can be no assurance that the Company would be able to
liquidate its position readily or without a loss if it should desire to do so.
Under the terms of the agreement to sell the Ryan Lode property La Teko
received 1 million shares of Silverado constituting approximately 1% of the
issued and outstanding stock of Silverado, which had a current market value as
of December 31, 1997 of $250,000 based on the closing sales price on Nasdaq.
There can be no assurance that the Company would be able to liquidate its
position readily or without a loss if it should desire to do so.
LIMITED TITLE TO UNPATENTED MINING CLAIMS
The Ryan Lode and the Margarita claim groups include Federal unpatented
mining claims. The Ryan Lode and True North groups include Alaska unpatented
mining claims. Such claims are subject to inherent uncertainties. Unpatented
mining claims, when properly located, staked, and posted according to
regulation, give the claimant possessory rights only. Possessory title to an
unpatented mining claim, when validly initiated, endures unless lost through
abandonment due to failure to perform and file proof of annual assessment work
or through a forfeiture which results from an adverse location made while the
prior location is in default with respect to the performance of annual
assessment work. Because many of these factors involve findings of fact, title
validity cannot be determined solely from an examination of the public record.
The continuing validity of these claims is subject to many contingencies,
including the availability of land for location at the time the location was
made, compliance with federal and state regulations for locating claims, the
performance of annual assessment work, the payment of annual rental fees and the
making of required annual filings with the Bureau of Land Management and the
appropriate state authority in which the claims are located. Failure to pay
required annual rentals constitutes a statutory abandonment of the mining claim
or site. Similar conditions apply to the mining claims which constitute the
Scheelite Dome property in the Yukon Territory, Canada.
The Company believes that it has valid possessory title to all of the
unpatented federal and state mining claims described herein.